Nokia 2003 Annual Report Download - page 101

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Interest rate risk mainly arises through interest-bearing liabilities and assets. Estimated future
changes in cash flows and balance sheet structure also expose the Group to interest rate risk.
Treasury is responsible for monitoring and managing the interest rate exposure of the Group. Due
to the current balance sheet structure of Nokia, emphasis is placed on managing the interest rate
risk of investments.
Nokia uses the VaR methodology to assess and measure the interest rate risk in the investment
portfolio, which is benchmarked against a one-year investment horizon. The VaR figure represents
the potential fair value losses for a portfolio resulting from adverse changes in market factors
using a specified time period and confidence level based on historical data. For interest rate risk
VaR, Nokia uses variance-covariance methodology. Volatilities and correlations are calculated from
a one-year set of daily data. The VaR-based interest rate risk figures for an investment portfolio
with a one-week horizon and 95% confidence level are shown in Table 2, below.
Table 2
Treasury investment portfolio Value-at-Risk
VaR 2003 2002
EURm EURm
At December 31 .................................................... 9.8 5.4
Average for the year ................................................ 6.7 5.1
Range for the year .................................................. 4.7-11.9 3.1-8.7
Equity price risk
Nokia has certain strategic minority investments in publicly traded companies. These investments
are classified as available-for-sale. The fair value of the equity investments at December 31, 2003
was EUR 8 million (EUR 137 million in 2002).
There are currently no outstanding derivative financial instruments designated as hedges of these
equity investments. The VaR figures for equity investments, shown in Table 3, below, have been
calculated using the same principles as for interest rate risk.
Table 3
Equity investments Value at Risk
VaR 2003 2002
EURm EURm
At December 31 .................................................... 0.2 6.5
Average for the year ................................................ 3.5 8.8
Range for the year .................................................. 0.2-9.4 5.5-19.0
In addition to the listed equity holdings, Nokia invests in private equity through Nokia Venture
Funds. The fair value of these available-for-sale equity investments at December 31, 2003 was
USD 85 million (USD 54 million in 2002). Nokia is exposed to equity price risk on social security
costs relating to stock compensation plans. Nokia hedges this risk by entering into cash settled
equity swap and option contracts.
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
100